IC-DISC

Are you the owner of a profitable operating business that sells into foreign countries? If most of your production costs are in the U.S., you may have the opportunity for substantial tax savings through an IC-DISC. Forming an Interest Charge Domestic International Sales Corporation, or IC-DISC, is a highly effective tax incentive for companies that export from the U.S. This separate tax-free corporate entity acts as a selling agent for sales to foreign countries.

Benefits of implementing an IC-DISC include:

Sales commissions paid to the IC-DISC are tax-deductible to the operating business

Dividends paid to shareholders are taxed at a favorable dividend rate

Profits may be accumulated for estate planning

Income can be shifted to lower tax bracket taxpayers

Examples of qualifying companies include those who manufacture goods in the U.S. and export them to Canada. The opportunity also includes companies providing certain services, such as engineering and architectural, that are used in building structures in foreign countries, as well as companies manufacturing goods that are used in an exported product.

IC-DISC Requirements: Lumsden McCormick Can Help You Gain the Advantage

Like any other tax incentive, there are certain IC-DISC requirements that must be met and restrictions on the types of products that qualify. For example, a corporation must be incorporated in one of the 50 states or District of Columbia and file an election with the IRS to be treated as an IC-DISC for federal tax purposes. Further, the corporation must have a single class of stock and maintain a minimum capitalization of $2,500.

There are also a number of complex rules on how to compute the sales commission, but properly structured, our international tax experts can help you can maximize the income that is sheltered by the IC-DISC.

For more information about IC-DISC services from Lumsden McCormick, contact Mark Janulewicz or a service leader or complete the information below.

On July 11, 2019, the IRS and Treasury released final regulations removing Section 1.451-5 of the Income Tax Regulations as a result of the changes made to Section 451 under the 2017 tax reform known as the Tax Cuts and Jobs Act (TCJA).